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March 22, 2009

Tafas v. Doll (Fed. Cir. 2009)

On Friday, the Federal Circuit issued its decision in Tafas v. Doll (formerly Tafas v. Dudas). The Tafas appeal concerns the validity of four rules in the continuation and claims rules package promulgated by the U.S. Patent and Trademark Office on August 21, 2007. The four rules at issue are: Rule 75, which requires applicants submitting more than five independent or 25 total claims to file an Examination Support Document (ESD); Rule 78, which limits applicants to two continuation applications per application family absent a petition and showing; Rule 114, which limits applicants to one RCE per application family absent a petition and showing; and Rule 265, which establishes the requirements for an ESD.

In an opinion authored by Judge Prost and joined by Judge Bryson, a split panel determined that Rules 75, 78, 114, and 265 are procedural, but that Rule 78 is inconsistent with 35 U.S.C. § 120. Judge Rader dissented in part, contending that all four of the rules at issue are substantive.

Judge Prost (at left) begins her discussion by rejecting the USPTO's argument that the District Court erred for failing to give the Office's interpretation of its rulemaking authority under 35 U.S.C. § 2(b)(2) proper deference under Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc. (1984). However, with respect to the USPTO's argument that the District Court also failed to accord the Office Chevron deference with respect to its interpretations of various sections of the Patent Act, and its belief that the continuation and claims rules were consistent with such interpretations, Judge Prost finds that "the USPTO's interpretations of statutes that pertain to the USPTO's delegated authority are entitled to Chevron deference." Thus, for rules that are within the scope of the Office's delegated authority (i.e., procedural rules promulgated under 35 U.S.C. §§ 2(b)(2) and 132(b)), the Court must "give Chevrondeference to the USPTO's interpretation of statutory provisions that relate to the exercise of delegated authority."

Having decided that the USPTO is to be afforded Chevron deference with respect to procedural rules, Judge Prost next turns to the issue of whether the continuation and claims rules at issue are substantive or procedural. Noting that the parties "vigorously disagree . . . as to how the boundary between 'substantive' and 'procedural' rules should be defined," Judge Prost disagrees with the District Court's "broad and absolute" reading of Chrysler Corp. v. Brown (1979) as defining as substantive "any rule that 'affect[s] individual rights and obligations.'" Instead, she finds the D.C. Circuit's approach in JEM Broad. Co. v. FCC (D.C. Cir. 1994) to be more persuasive. (In view of Judge Prost's use of JEM, it's interesting, but perhaps not surprising, that she cites Professor Mark Lemley and fellow Circuit Judge Kimberly Moore's article on "Ending Abuse of Patent Continuations" in a footnote on page two of the opinion.)

In JEM, the Federal Communications Commission adopted "hard look" rules in response to a significant number of "carelessly prepared and speculative applications" for broadcasting licenses. Under the FCC's rules, applications that failed to include necessary information or contained incorrect or inconsistent information were dismissed with no opportunity to cure the defect. Noting that the D.C. Circuit had "recognized that the rules could result in the loss of substantive rights, but found that they were nonetheless procedural because they did not 'foreclose effective opportunity to make one's case on the merits,'" Judge Prost concludes that the continuation and claims rules are procedural because "[i]n essence, they govern the timing of and materials that must be submitted with patent applications," adding that while the rules "may 'alter the manner in which the parties present . . . their viewpoints' to the USPTO, . . . they do not, on their face, 'foreclose effective opportunity' to present patent applications for examination."

With respect to Rules 78 and 114, Judge Prost states that:

Applicants who include in each continuation application all amendments, arguments, and evidence available at the time of filing will not be limited by Final Rule 78. Similarly, applicants who diligently present all of their amendments, arguments, and evidence as soon as possible during prosecution will be granted as many RCEs as they require. Thus, applications that are submitted in compliance with these timing requirements will be fully examined and given all of the benefits provided by the Patent Act.

As a result, Judge Prost finds these rules to be procedural under a JEM analysis. While acknowledging that the Office's responses during the notice and comment period suggested that the USPTO would "deny additional applications in almost all circumstances" such that Rules 78 and 114 would create "hard limits" on continuation and RCE filings, the majority states that "we decline to rely on these responses, which are not binding on the USPTO," adding that courts "will be free to entertain challenges to the USPTO's application of the Final Rules, including its view of when amendments, arguments, and evidence could not have been submitted earlier."

With respect to Rules 75 and 265, Judge Prost states that:

Once a satisfactory ESD is submitted, examination will proceed in precisely the same manner as it would have in the absence of the rule. It is important to note that an examiner is not permitted to substantively reject claims on grounds that the ESD did not prove that the claims are patentable.

As a result, Judge Prost finds these rules to also be procedural under a JEM analysis. However, because she states that the search requirement of Rule 265 "does not necessarily require a visit to every library in every corner of the world," but rather only requires "[a] reasonable, cost-effective search," the implementation of Rules 75 and 265 would also lead to an inevitable increase in the number of lawsuits filed by applicants against the USPTO. While Judge Prost is "mindful of the possibility that the USPTO may in some cases attempt to apply the rules in a way that makes compliance [with Rules 75 and 265] essentially impossible and substantively deprives applicants of their rights," she notes that in such circumstances, "judicial review will be available." Judge Prost also dismisses the concern that "even the most diligently prepared ESD will inevitably open the applicant to inequitable conduct allegations that will entail costly litigation and a possible finding of unenforceability," as being "too speculative to void the rules." As with the Office's interpretation of the new rules, the majority states that:

We recognize that the drafting of an ESD will entail browsing many references, that mistakes and omissions will inevitably occur, and that the courts will be asked to determine if there was inequitable conduct. However, doubt about the judiciary's ability to apply its own doctrine in a way that yields fair results and discourages frivolous allegations should not preclude the USPTO from promulgating rules that are within its statutory authority.

Finding that the four rules at issue are procedural, Judge Prost turns to the question of whether the four rules are consistent with the Patent Act. Judge Prost begins with Rule 78, which, like the District Court, she determines to be inconsistent with 35 U.S.C. § 120, albeit on "narrower grounds." In particular, Judge Prost notes that while "Section 120 unambiguously states that an application that meets four requirements 'shall have the same effect, as to such invention, as though filed on the date of the prior application,'" new Rule 78 "attempts to add an additional requirement -- that the application not contain amendments, arguments, or evidence that could have been submitted earlier -- that is foreclosed by the statute." With respect to In re Henriksen (C.C.P.A. 1968) and In re Bogese (Fed. Cir. 2002), Judge Prost dismisses these cases as being unhelpful to the USPTO's cause, the former concerning the permissible length of a chain of serial continuations, rather than the total number of continuations that may be filed, and the latter concerning prosecution history laches (Judge Prost notes that Rule 78 "simply captures too many applications that would not be even remotely susceptible to a prosecution history laches challenge").

As for Rules 114, 75, and 265, Judge Prost finds none of these rules to be inconsistent with the Patent Act. First, she finds the application of an RCE limit to application families rather than individual applications to be not inconsistent with 35 U.S.C. § 132 because that section does not "unambiguously dictate[] that its provisions be applied on a per application basis." In addition, with respect to the argument that Congress intended RCEs to be subject only to the applicant's discretion, Judge Prost states "[i]t is plausible that, as the USPTO suggests, § 132(b) simply directs the USPTO to 'prescribe regulations' to govern the applicant's ability to request continued examination which must, in some circumstances, be granted" (emphasis added). As for the possibility that Rules 75 and 265 create a hard limit on the number of claims that an applicant can file, the majority states that:

[W]e need not decide whether the USPTO may impose a limit on the number of claims an applicant can pursue because we do not find that the ESD requirement creates any such limit. Rather, it simply requires that an ESD be submitted if more than five independent or twenty-five total claims are included in certain sets of copending applications.

In response to the argument that Rule 265 creates a duty to conduct a prior art search, the majority states that "[w]e agree with the USPTO that [the cases cited by the District Court] do not speak to whether the USPTO may impose such a duty by regulation," and therefore, "[o]n this record, we see no persuasive reason to prohibit the USPTO from requesting the information required by Final Rule 265, even if the applicant must take action to acquire that information." Reiterating her procedural analysis, Judge Prost also dismisses the argument that Rules 75 and 265 improperly transfer examination burdens from the Office to applicants, stating that these rules "do not require an applicant to make a prima facie case of patentability," adding that "[a]n examiner cannot reject an application because he believes that the applicant failed to find the most material references or if he is otherwise not persuaded by the applicant's view of the prior art."

After concluding that Rules 75, 78, 115, and 265 are procedural, and further, that Rule 78 is inconsistent with the Patent Act, Judge Prost notes that:

Because of the complexity of this case and the numerous arguments presented on appeal and before the district court, we think it is important to expressly summarize what we believe remains for the district court on remand. This opinion does not decide any of the following issues: whether any of the Final Rules, either on their face or as applied in any specific circumstances, are arbitrary and capricious; whether any of the Final Rules conflict with the Patent Act in ways not specifically addressed in this opinion; whether all USPTO rulemaking is subject to notice and comment rulemaking under 5 U.S.C. § 553; whether any of the Final Rules are impermissibly vague; and whether the Final Rules are impermissibly retroactive.

In his concurring opinion, Judge Bryson helpfully provides the USPTO with a roadmap for modifying Rule 78 to render it consistent with 35 U.S.C. § 120 -- at least as far as he is concerned. Stating that "the most difficult question in this case . . . is whether Final Rule 78 is a valid regulation in light of 35 U.S.C. § 120," Judge Bryson notes that while he agrees that the rule is invalid, he thinks "it is important to emphasize the narrow scope of the court's decision." Stating that "a rule limiting the number of continuances co-pending with the first-filed application is necessarily contrary to the statute and invalid," Judge Bryson argues that this "does not answer the question whether the rule is invalid as applied to serial continuances." While he acknowledges that "[f]or the last 40 years, . . . section 120 has been understood to confer upon patent applicants the right to file any number of successive continuation applications after the first application has been abandoned or issued as a patent," he contends that "[i]t would not be unreasonable, however, to construe the phrase 'an application similarly entitled' [in § 120] to mean an application that satisfies all the preceding requirements set forth in section 120, including the requirement of co-pendency with the initial application." Judge Bryson notes that while the majority properly struck down Rule 78, that does not mean "a revised rule that addressed only serial continuances and limited such continuances to only two -- the first co-pending with the original application and the second co-pending with the first -- would be struck down as reflecting an impermissible interpretation of section 120." Thus, in view of Judge Bryson's analysis, the USPTO could impose a two-continuation limitation -- or whatever limit the Office deemed necessary to resolve its backlog -- on any continuation that was not filed while the original application was still pending. In other words, for applicants wishing to file continuations serially, the 2+1 rule (two continuations + one RCE) would merely become the 3+1 rule.

Judge Rader (at right), writing in dissent with respect to all but the majority's finding that Rule 78 is inconsistent with the Patent Act, states that "in my view, the Final Rules are substantive, not procedural." Noting that "[t]he distinction between substantive or non-substantive rules requires a difficult judgment," Judge Rader admonishes that he "would not so casually discard, as this court does today, this court's precedent for identifying a 'substantive' rule." In particular, Judge Rader states that:

The Supreme Court provided valuable guidance on the substantive/non-substantive inquiry in Chrysler Corp. v. Brown, 441 U.S. 281 (1979). In Chrysler, the Court defined an inherent characteristic of a "substantive" or "legislative-type" rule, namely, such rules "affect[] individual rights and obligations." Id. at 302. Contrary to this court's analysis today, the Chrysler Court's reasoning was in no way limited to defining the boundary between interpretative and substantive rules. The Court sought to draw a broad distinction between substantive and non-substantive rules -- the same inquiry presented in this case. Id.

* * *

Both this court and the Court of Appeals for the District of Columbia Circuit have relied on Chrysler in building a body of jurisprudence germane to the substantive/non-substantive inquiry. Central to this jurisprudence is the recognition that classifying a rule as substantive or non-substantive is a case-by-case exercise, poorly suited for bright-line rules.

With respect to the majority's reliance on JEM, Judge Rader argues that "as JEM illustrates, the test for substantive, ultra vires rules is a case-by-case inquiry, not a rigid application of a sentence out of context in JEM." Noting that the public participation during the notice and comment period was "overwhelming (itself an indication of the substantive impact of the rules?)," Judge Rader adds that "[m]any of the comments shared a common concern: that the Final Rules 'had a significant effect on private interests, and marked a change in existing law or policy,'" and states that he "share[s] that concerned view."

Judge Rader concludes his dissent by outlining how each of the four rules at issue would have "sufficiently grave" effects. His analysis regarding the probable impact of Rule 75 is of particular interest:

[L]imiting an applicant to five independent claims ignores the varying scopes and methods of claiming inventions across different technologies. For example, in a pharmaceutical application, an applicant may claim not only the genus compound, but also a number of species, intermediates, methods of making, and methods of use. Asking an inventor to limit her application to five independent claims disproportionately affects technologies with greater complexity and greater public interest in disclosure.

Judge Rader also explains that:

[Rule 75] has a similar effect to imposing a five-page limit on applications. Although that notion is obviously too simplistic and problematic, this court's rationale would apparently make that hypothetical rule possible as a procedural rule that merely "[alters] the manner in which the parties present themselves or their viewpoints to the agency." JEM, 22 F.3d at 326. To my eyes, much more is at stake.

Comments

Don,

I stand by my prior comments: Judges Prost and Bryson are clueless about the authority of the PTO, the impact of these Rules substantively, and that the PTO intends these Rules to allow no flexibility for more than 2 continuations and one RCE per family. Ignoring the PTOs Comments on these Rules when issued as "non-binding" is completely naive about the PTO's expressed intention.

Before I forget, and as astutely pointed out on another blog, let's not forget the "Trojan Horse" in modified 37 CFR 1.104(a) to add "and other requirements" to
the phrase "the examination shall be complete with respect both to
compliance of the application or patent
under reexamination with the
applicable statutes and rules" which would allow the PTO to apply the requirements of the MPEP, even though the MPEP can and is modified without any "notice or comment" required by the APA.

Another thought to consider. Having gotten over my initial (and very emotional) reaction to Judges Prost and Bryson having “precedential amnesia”, the fact is with the continuation limitation portion of this Rule package blocked by even the Federal Circuit, the PTO has no choice but to modify this package to take that block into account, or else the package won’t be internally consistent, and thus highly vulnerable to further legal attack. That being said, you have to wonder whether the PTO has the energy (and the backing of the current Obama administration) to continue this fight if Tafas/GSK pursue this suit (likely) in district court, including renewing the other arguments that Cacheris chose not to address.

Any reissuing of these Rules (Cacheris may even block any attempt to reissue these Rules until the current Tafas/GSK suit is over), which the PTO dare not do without offering “comment and notice” to the public, would create another “firestorm” of comments where those commenting will be watching the PTO carefully as to how they cross the “t”s and dot the “i”. Any slip here by the PTO will certainly draw fire, including potential additional suits (now that blood has already been drawn) challenging the reissued Rules. That potentially means a drawn out battle taking years to resolve, which leaves you wondering whether the Obama administration would expend its political capital to let such “blood letting” occur for an issue that didn’t start on its watch. More significantly, given the current budget crisis facing the PTO (and of its own making by causing the allowance rate to dive to close to 40%), one must wonder whether the PTO has the resources to push these Rule packages much farther.